Salaried Members on Payroll from 6 April 2014
Legislation will be introduced in the Finance Bill 2014 to change the treatment of a salaried member of a Limited Liability Partnership (LLP), from that of a partner to that of an employee for both income and corporation tax purposes.
The new rules take effect from 6 April 2014 and LLP member’s agreements and profit sharing arrangements will need to be carefully reviewed, to consider the impact of the changes as it may mean that some LLP members will need to go on the payroll from 6 April 2014.
An individual, who is a member of an LLP, is treated as employed under a contract of service for income tax, by reference to conditions A, B and C:
Considers the manner in which the individual is rewarded for his or her performance of services to the LLP. A Salaried Member will have a reward package that is largely that which an employee would have. This means they will be substantially remunerated through a fixed salary or a variable bonus based on their performance, rather than a share of the profits of the overall business;
Ensures that an individual will not be a Salaried Member if he or she has a significant say in the running of the business as a whole;
Looks at the capital contribution made to the LLP by the individual. A partner in a traditional partnership risks losing money if the business fails. To reflect this, an individual will not be a Salaried Member if he or she has invested an amount of money in the LLP that is at least 25% of their expected income from the LLP, which is fixed or variable income for a tax year as described under Condition A.